What the Affordable Care Act’s 80/20 Rule Means for Your Health Insurance

Health insurance can feel complicated, but one of the most consumer-friendly protections built into the Affordable Care Act (ACA) is something called the 80/20 Rule. This rule, also known as the Medical Loss Ratio (MLR) requirement, was designed to make sure you get the most value out of the money you spend on health insurance premiums.

What is the ACA’s 80/20 Rule?

Under the ACA, insurance companies must spend the majority of the premium dollars they collect on actual medical care and health-related services, not on profits or administrative expenses. Specifically:

• For individual and small group plans, insurers must spend at least 80% of premium dollars on medical care and quality improvement.
• For large group plans (usually offered by bigger employers), that requirement increases to 85%, leaving only 15% for overhead and profit.

This means that when you pay your health insurance premium each month, most of that money goes directly towards covering doctor visits, hospital stays, prescriptions, and programs that improve health outcomes.

The 80/20 Rule protects employees in several ways. First, it ensures that the money you contribute towards health insurance is being used primarily for your care, rather than administrative costs like advertising or executive salaries. This creates more value for employees and families, helping to keep coverage focused on health rather than profits.

Second, the Rule promotes transparency. Insurance companies are required to report how they spend premium dollars each year. If they don’t meet the 80/20 standard, they must issue rebates. Sometimes these rebates go directly to employees, but often they are sent to employers, who are then obligated to use the funds to benefit their workers, such as reducing premium contributions or enhancing coverage options.

For example, if your insurer collects $1,000 in premiums, at least $800 must be used to pay for medical care and health services. Only $200 can be used for overhead or profit. If the insurer only spends $750 on care, it hasn’t met the standard, and the difference must be refunded to policy holders.

For employees, this rule offers reassurance that your health insurance premiums are truly working for you. It also keeps insurance companies accountable, ensuring that health coverage remains more affordable and consumer friendly.

The Affordable Care Act’s 80/20 Rule may not be something you hear about every day, but it is a powerful protection. It guarantees that most of your premium dollars are invested directly into your health care, and if an insurance company falls short, you could receive a rebate.

For more information, please visit: Rate Review & the 80/20 Rule | HealthCare.gov